TOPICS: Business Ethics, cigarette, CVS, Health
SUMMARY: CVS, the nation’s second-largest pharmacy chain,
said Wednesday that it would stop selling all cigarettes and tobacco products
nationwide by October, saying they have no place in a drugstore company that is
trying to become more of a health-care provider. The move is a bold and
expensive one for CVS, a unit of Woonsocket, R.I.-based CVS Caremark Corp. It
reflects a major push by retail pharmacies away from simply dispensing drugs
toward a more integrated role of providing basic health services to
Americans-including millions of newly insured-amid an expected shortage of
primary care doctors. The news is another blow to the $100 billion tobacco
industry that is wrestling with slumping sales, rising taxes, widening smoking
bans and a resurgence of public information campaigns highlighting the perils
of smoking. For CVS, the move will be costly. The drugstore chain estimates it
will lose $2 billion in annual revenue from tobacco and other sundries as a
result, which amounts to about six to nine cents a share this year and about 17
cents annually from next year on. CVS, with annual revenue of more than $123
billion, projects its 2014 earnings will be $4.36 to $4.50 a share. But it is
banking the strategy will give it a competitive edge over rival pharmacies in
forging partnerships with hospitals, insurers and physician groups. These types
of alliances are critical to drugstores like CVS and Walgreen Co. as they
redefine themselves in what has been a historic downturn in prescription drug
sales. CVS sees its future in making its in-store clinics a convenient
health-care alternative to long waits at the doctor’s office, along with CVS
pharmacists counseling patients. That strategy was increasingly at odds with
racks of cigarettes, cigars and chewing-tobacco residing behind the cashier’s
counter, said Larry Merlo, chief executive, in an interview. “Cigarettes
have no place in an environment where health care is being delivered,”
said Mr. Merlo, a 58-year-old former pharmacist who became CEO of CVS Caremark
in 2011. “This is the right decision at the right time as we evolve from a
drugstore into a health-care company.”
CLASSROOM APPLICATION: The nation’s second largest pharmacy
will stop selling cigarettes, putting pressure on rivals Walgreens, Rite Aid
Corporation, and even Walmart stores to adopt similar measures. CVS is counting
on consumers wanting to do business with a pharmacy focused on improving health
and providing products associated with that of a healthcare provider. The
company will not only dispense drugs to make people well but wants to use the
shelf space to provide other healthcare products. The move will cost the drug
store about $2 billion in revenue, but it is banking on stakeholder support from
hospitals, insurers, and position groups. CVS’s stock dropped about 3 percent
in the first few days after the announcement, but the company is not worried
because it feels that it is gaining a competitive advantage in positioning.
QUESTIONS:
1. Will CVS’s competitors stop selling cigarettes, or will
they take advantage of a market opportunity since many of their stores are
located very close to CVS stores?
2. Do you believe that a firm should sell a product that
causes major health risks in a store that is positioned to help people manage
and improve their health?
